Goldman Sachs' role in masking Greece's real debt burden is to be investigated
by the US Federal Reserve and the Securities and Exchange Commission (SEC).

Ben Bernanke, chairman of the central bank, confirmed that Goldman and a number of other unnamed banks are the subject of two examinations. Mr Bernanke, who stopped short of saying an official inquiry had been launched by either regulator, warned that using derivative "instruments in a way that potentially destabilises a company or a country is counterproductive."

The revelations, which came as ratings agencies Standard & Poor's and Moody's warned that they may downgrade the Hellenic nation's sovereign debt within a month, only serve to increase the already intense glare on the Wall Street investment bank over its involvement with the Greek government.

The situation has also served to fan the flames of controversy surrounding the bank, which is known as "Government Sachs" in certain circles due to its links to a number of the world's governments.

Angela Merkel, the German Chancellor, said recently it would be a "scandal" if the banks at the centre of the financial crisis had also helped Greece "falsify its budget."

The two separate yet linked American inquires will focus on Goldman's work with the Greek Treasury dating back to 2001.

Of particular interest will be the sale by Goldman of $15bn (£9.8bn) of Greek bonds following a complex loan-turned-currency swap which allowed the government of the day to mask the true extent of its budget deficit.

At the time, the derivative did not have to be disclosed under European rules, helping Greece to stay within deficit limits related to its membership of the Euro.

No mention of the currency swap was mentioned in six of the ten bond sales documents issued by Goldman, according to prospectuses reviewed in detail by Bloomberg News.

Appearing before the Senate banking committee, Mr Bernanke said the Fed is "looking into a number of questions relating to Goldman Sachs and other companies related to their derivatives arrangements with Greece," before adding that the SEC is looking into whether the use of a derivative has helped to destabilize the country's finances.

The situation is already being examined by the European Union, after Eurostat, the EU statistics agency, discovered the existence of the derivative, which Goldman no longer owns. The Greek government has until February 28 to provide details of how it impacted its budget deficit.

A Goldman spokesman declined to comment, saying: "As a matter of policy, we don't comment on legal or regulatory matters."

Speaking in London earlier this week, Gerald Corrigan, who co-chairs Goldman's risk management committee, said the use of the derivative product was "consistent" with the regulations of the day and were legal at the time.

However, the former head of the Federal Reserve Bank of New York went on to admit to the Treasury Select Committee that "with hindsight" the use of the complex derivative should have been more transparent.